Soaring coffee prices raising the cost of your cup of joe

View full sizeGus Chan/The Plain DealerAn open bag of coffee beans awaits the roaster at the Phoenix Coffee Co. on St. Clair Avenue in Cleveland. Phoenix Coffee Chief Executive Sarah Wilson-Jones said she reluctantly raised prices at her five cafes in October, fully expecting that costs would have come down by now. But instead, some coffee prices are at 34-year highs.

CLEVELAND, Ohio -- Hang on to your coffee mugs.

An ongoing shortage of raw green coffee beans is triggering another round of price hikes for your favorite cup of joe.

Starbucks Corp., the world's largest coffee shop chain, is raising its prices an average of 17 percent on bagged coffee sold in its cafes, starting July 12.

That means prices on one-pound bags will rise to $11.95 to $14.95 per bag, up from the current $9.99 to $13.95 per bag.

That's on top of Starbucks' 12-percent price hike on its supermarket packaged coffee in March.

Sarah Wilson-Jones, chief executive of Phoenix Coffee Co., raised prices at her five coffee shops by 60 cents a cup in October, certain that prices would come back down by the end of 2010.

But nearly halfway into 2011, she still can't believe green coffee prices are still around $3 a pound instead of their usual $1.50.

"This is unprecedented in the coffee business, and it's pretty much squeezing small roasters," she said. "I just don't know how long smaller roasters can keep swallowing it."

Even though her 20-ounce cups of coffee now cost $2.55, "we're still eating a huge amount of the increase," because she doesn't want to drive away her regulars.

"Our wholesale bean prices right now are what my retail prices were when I started 15 years ago," Wilson-Jones said.

Angel Falls Coffee Co. in Akron recently raised its prices for the first time in eight years, from $9.95 to $14.95 for a one-pound bag of whole-bean coffee.

"This is (in response to) the largest increase in the 14 years we've been in business," said Rafael Oletta, co-owner, coffee buyer and master roaster.

"Every time I call my broker, there's a 2-cent increase here, a 5-cent increase over there, and you have to bite the bullet and buy it."

Colombia and Brazil, two of three largest coffee-producing nations, have been devastated by El Ninos and heavy rains over the past two years, cutting their coffee yeilds by about 30 percent.

And high oil prices means it costs even more to transport those beans from the countries that produce them to the nations that drink the coffee, he said.

Oletta said that while mainstream brands like Folgers can buy their beans from several countries such as Honduras, Indonesia and Vietnam, prices for single-source premium beans, fairly traded, organic and shade-grown coffees are even higher.

Colombian beans now cost more than $5 per pound.

A 16-ounce cup of coffee that used to cost $1.75 is now $1.95, while a 12-ounce cup that cost $1.45 is now $1.65.

Alan Glazen, co-owner of Erie Island Coffee Co. stores on East Fourth Street in Cleveland and in Rocky River, said he held off for two years before raising his prices 3 percent on some coffees a few months ago.

"In the coffee business, like the tavern business, the cost of coffee isn't as big a factor" in the per-cup cost, he said. He said he and his partner have absorbed two-thirds of the increase, "and our customers appreciate that we're not trying to soak them."

Sterling Smith, a market analyst who follows the coffee markets for Country Hedging Inc. in St. Paul, Minn., said Smucker and Starbucks couldn't afford not to raise their prices.

"The coffee companies have fought tooth and nail to avoid price hikes, but everyone's hands have been pretty much forced," he said.

With more coffee-drinking nations competing over a limited supply, he doesn't expect raw coffee prices ever to dip below $1 a pound again.

And unlike commodities like soybeans, where production can be ramped up to correct a shortage within six months, coffee plants take eight to 12 years to become mature enough to produce coffee beans.

Coffee lovers rarely cut their consumption when costs go up.

Higher prices may drive them to trade down from their favorite brands or switch to the free coffee at work, but once people get accustomed to drinking coffee, they rarely give up the habit, he said.

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